1Mby1M Incubation Radar 2010: Fabulousyarn

By guest author Praveen Kumar

Fabulousyarn is a Web retailer that deals in luxury yarn and knitting accessories. The company also sells through a brick-and-mortar shop in Tivoli, New York. Fabulousyarn has positioned itself as a niche site for high-quality yarns that caters to women passionate about knitting. The company evolved from a hand-knit sweater business called fabsweaters, which was started by Judy Schmitz in 2003.

Schmitz is a serial entrepreneur and technology enthusiast with a background in retail merchandising, Web technologies, and music. Schmitz says that she has always been a fiber lover and began knitting for her children at the suggestion of a friend. Her involvement with SEO and SEM and experience with technology and mobile computing helps her to run her businesses virtually. Previously, Schmitz was a retailer for Koret of California and for Donnkenny. She was the lead designer for Joe Boxer when that company was started and has worked for many larger companies such as Macy’s and Saks Fifth Avenue.

The market for yarn is about $1.5 billion and is growing. Seventy percent of knitters who responded to a 2010 Crafts Council of America survey said they intend to start more projects this year than in 2009, and a large number of them say that they have taught at least one other person how to knit or crochet in the past year. Knitting, which is thought to have originated in the Middle East, was a skill that many Western women possessed prior to the industrial revolution. Its practice declined as more clothing was made in factories. Knitting again became popular during World War II and remained a skill that children were taught through the 1950s and 1960s. By the 1980s it had declined again, only to undergo a revival over the past decade.

Fabulousyarn’s top target segments are dedicated knitters who are looking for specific brands and qualities or features, such as yarns that are beaded, hand-painted, and hand-spun. Most of the time, this group comprises women aged 18–54.

When Fabulousyarn entered the market in 2006, there were two competitors, both of which still exist: yarn.com and Jimmy Beans Wool. These companies have more employees than Fabulousyarn and four to five times the product lines that Fabulousyarn carries. Schmitz believes that as far as customers are concerned, perception is everything and that actual size is less important. She competes by relying on mobile technologies to provide an exceptional customer experience. She interacts with her customers on BlackBerries, iPhones, iPads, and Twitter and aims to respond within minutes to orders and inquiries. She servers customers from wherever she is. Fabulousyarn also differentiates itself from the competition through a focus on luxury and specialty yarns, including silk, cashmere, merino, lace, and sock yarn. Though she does match competitors’ prices, Schmitz says that she doesn’t focus on price. Rather, her main focus is on having what people desire, what engages their imagination, their hands, or their need for an unusual fiber. She says that despite her company’s small size, for some wholesale vendors (e.g., Lantern Moon, Blue Sky Alpacas, and Artyarns), she is the biggest customer.

Fabulousyarn’s revenue has gone from $7,000 in the first year, 2006, to $500,000 this year. Schmitsz reinvests everything the company earns into the business. The website receives 25,000 visits a month. The average purchase is $73, and monthly revenues are $30,000.

The business is bootstrapped and currently has about $65,000 of debt. At present, Fabulousyarn has no financing and is interested in obtaining inventory financing to build up the inventory and improve the technology the company uses so that Schmitz can spend more time creating business instead of chasing orders because of out-of-date inventory. She also wants to hire a full-time employee dedicated to building the business. Schmitz says that if she can double the number of quality product lines, she can triple the size of the company. Fabulousyarn’s ideal investor is one who supports its commitment to quality and its niche approach.

Schmitz adds one or two product lines every six months and has been working with new vendors. Fabulousyarn is part of Amazon’s marketplace. Schmitz is also building Etsy and eBay shops and is talking to social commerce site Groupon about a possible deal. Further, she plans to expand her custom lines, where profit margins are good.

As of now, Schmitz has no exit plan and wants to be able to build the business to support herself, her family, and the people who work for it. She would like to continue to increase her brand recognition so that when people are looking for new projects to do or for fibers they have not seen before, they come straight to Fabulousyarn.

Fabulousyarn presented at Sramana’s 1M/1M roundtable on August 19, 2010. The chat transcript of the session is here. You can also find Sramana’s recap here. Sramana advised Schmitz to preserve equity control of her venture but to take some inventory financing to help the company grow faster. In addition, Sramana encouraged Schmitz to review her Web 3.0 framework and focus more on building content and community engagement on the Fabulousyarn site, inviting her customers to guest blog, teach classes, and so forth, all of which would create much stronger brand engagement and drive higher volumes of SEO traffic if done right. Finally, Sramana advised Schmitz to stay away from diluting herself by offering low-margin, commodity products because she would have to serve those customers, and it would eat away her margins rapidly, making it harder to grow organically and undermining the success she has achieved thus far.

Recommended Readings
Deal Radar 2009: Jimmy Beans Wool
The 1M/1M Incubation Radar: Sock Monkeys Clothing
“Lessons from the Poor”: The Nigerian Clothing Design Industry

This segment is a part in the series : 1Mby1M Incubation Radar 2010